Stocks Slide as Oil Surges; Lehman Rises
Stocks opened lower on Wall Street Monday as oil neared $140 a barrel and after a report from the New York Federal Reserve on regional manufacturing activity showed a worse-than-expected contraction.
Oil jumped to a new record above $139 a barrel, before pulling back to the $137-138 range,even after weekend news that Saudi Arabia plans to increase output. A source close to the Saudi oil industry told CNBC.com that the 500,000-barrel-a-day goal may not be achievable.
Airlines, not surprisingly, took a beating amid surging oil prices, with multiyear lows across the board.
The New York Fed reported its Empire State manufacturing index fell to minus 8.68from minus 3.23 in May. It was the fourth contraction in the index in the past five months and was more severe than the minus-2 reading expected.
The market was buzzing about an article in the Washington Post this morning that said Federal Reserve Chairman Ben Bernanke doesn't plan to begin raising rates anytime soon.
"Speculation that the Federal Reserve is about to begin inflation-fighting interest rate increases appears to be dead wrong," Post columnist Robert Novak wrote, citing unnamed sources close to Bernanke.
Talk of the Fed beginning a tightening cycle has escalated since ECB chief Jean-Claude Trichet said a few weeks ago that the European central bank will soon begin raising rates to stifle inflation.
Morgan Stanley said the ECB will likely begin raising its rates in the next few months, something that, if the limited history in this area is any guide, could give European stocks a boost.
Blue chips took it on the chin.
CNBC.com-parent General Electricsaw its shares fall 2 percent after JP Morgan Securities downgraded the company from "overweight" to "neutral" and cut its earnings forecast.
IBM slipped after Citigroup dropped Big Blue from its recommend list.
Financials were back in focus.
Lehman Brothers shares advanced after swinging between positive and negative territory in pre-market trading as traders digested the investment bank's earnings report.
(Will Lehman follow in Bear's footsteps? Former Lehman CFO Brad Hintz weighs in. Click on the video at left.)
Lehman delivered aloss of $5.14 a share, or $2.77 billion, exactly what it had pre-announced last week. It was the firm's first-ever loss since being spun off from American Express in 1994. Traders initially breathed a sigh of relief that the results were as expected, bidding the stock up in pre-market trading. But shares began to falter as traders dug into the details, discovering some unexpected details, including the fact that the value of gross assets plunged by $147 billion during the quarter, more than the firm had estimated last week.
Still, the overall impression seems to be positive.
"The market was really focused on what Lehman would deliver. They were spot-on in the estimates and their numbers," Peter Kenny, managing director at Knight Equity Markets in Jersey City, N.J., said.
In a conference call following the earnings report, CEO Richard Fuld said the firm didn't react quickly enough to the deteriorating market and that the $2.8 billion loss "is my responsibility." He added, "our core business and our strategy are sound" and "we have a track record of taking market share coming out of difficult cycles."
Goldman Sachs and Morgan Stanley are slated to report earnings later this week; shares of both firms rose.
The latest corner-office casualty is AIG CEO Martin Sullivan, who was ousted as the firm's losses mounted and board and shareholder discontent mounted. AIG has named Chairman Robert Willumstad, a former top Citigroup executive, as his successor. Shares advanced after opening lower.
Telecoms declined after UBS cut its rating on both AT&T and Verizon to "neutral" from "buy."
Shares of both Sirius and XM Satellite Radio shot up after FCC Chairman Kevin Martin confirmed reports that he would support the 16-month-old deal.
"I am recommending that with the voluntary commitments they've offered, on balance, this transaction would be in the public interest," Martin said in a statement.
In foreign trade, the European market turned flat while Asian markets rallied on inflation fears.
MONDAY: NAHB housing index; Fed's Bernanke, Lacker speak; earnings from Adobe
TUESDAY: PPI; housing starts; current account; industrial production; earnings from Best Buy, Goldman Sachs
WEDNESDAY: MBA mortgage applications survey; oil inventories; Fed's Yellen speaks; Morgan Stanley, FedEx earnings
THURSDAY: Jobless claims; Philly Fed survey; leading indicators; natural gas inventories; Fed advisory panel meets to discuss credit-card regulation
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